06 Strategies

The Hottest Property Strategies Right Now

  • These strategies can make you serious money
  • But only if you are aware of their risks and dangers

Have you ever wondered which are the most popular and effective property strategies being carried out by UK property investors right now?

Are you worried about choosing the wrong strategy – about getting involved in something that does not work in the current climate and could easily leave you out of pocket?

This blog:

  • Identifies the 5 profitable strategies which are currently super popular with investors and
  • Reveals the pitfalls and dangers you need to watch out for in order to cut down the risk of strategy failure. 

The 5 strategies are:

1. Buy to let
2. Renting HMOs
3. Providing serviced accommodation
4. Rent to rent
5. Property sourcing

1. Buy to let (BTL)

  • What is it?

BTL is buying a residential property and renting it out to a tenant. If you take out a mortgage to buy, the rent of the tenant will pay the monthly mortgage payments, with anything left over being your gross income or profit.

  • Why is it popular?

BTL is straightforward and relatively easy to get into. With a 25% deposit and a good credit record, you can currently get a mortgage for 75% of the purchase price at good interest rates.

There is an ever increasing amount of red tape applicable to landlords,  but there remains a strong demand for rental accommodation and rents always seem to be on an upward trajectory.   

  • Pitfalls and dangers

Perhaps the biggest danger is having an empty property not earning rent or a tenant in occupation and not paying rent.

You can minimise the risk of both by engaging a high quality letting agent to rent out the property on your behalf to a good quality tenant.

Only do the job yourself if you are confident that you can run effective credit checks on potential tenants and can identify someone likely to make a good tenant from someone likely to be a nightmare.

  • Good advice

If you’re new to BTL, carry out full due diligence before getting started. Educate yourself, perhaps formally as well as informally. Link up with existing BTL landlords you know and consider getting a property coach or mentor.

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2. Renting HMOs (houses in multiple occupation)

  • What is it?

As a property strategy, renting HMOs is similar to buy to let, but instead of renting out the whole property to one tenant, the landlord rents it out to several tenants on a room by room basis. Another term for HMO is “house share”. 

Typically a tenant has their own room but share other rooms such as kitchen, bathroom and toilet. The rent usually includes council tax, gas, electricity and water – which, for convenience, are paid for by the landlord.

The term “HMO” has a technical meaning which is set out in full on the government’s website gov.uk.

The website states:

“Your home is a house in multiple occupation (HMO) if both of the following apply:

  • at least 3 tenants live there, forming more than 1 household
  • you share toilet, bathroom or kitchen facilities with other tenants

Your home is a large HMO if both of the following apply:

  • at least 5 tenants live there, forming more than 1 household
  • you share toilet, bathroom or kitchen facilities with other tenants

A household is either a single person or members of the same family who live together. A family includes people who are:

  • married or living together – including people in same-sex relationships
  • relatives or half-relatives, for example grandparents, aunts, uncles, siblings
  • step-parents and step-children…

All large HMOs need a licence from the local council

  • Why is it popular?

The big plus of renting out a property as an HMO is the much higher rent compared to renting it on a single tenancy to a single family or person.

With there being a shortage of homes in most parts of the country, there is strong demand for the smaller and cheaper units which an HMO typically provides.

  • Pitfalls and dangers

The biggest negative of HMOs is the extra level of regulation applicable to such properties.

With any HMO you should check with the local council for its requirements as to fire safety and amenity standards.

Large HMOs will need a licence from the council every 5 years.

If the council has issued “an Article 4 Direction” in a locality, you may need planning permission to operate a new HMO in that locality, with the delay and additional cost that may cause.   

While HMOs attract much higher rents than single lets, their running costs will also be higher.

  • Good advice

Given the relative complexity of setting up and running an HMO, it is highly desirable to seek formal training on the strategy before starting up – especially if you are a new landlord.

Unless you have the time and skills, it is good practice to employ a top quality management company, skilled and experienced at managing HMOs.

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3. Providing serviced accommodation (SA)

  • What is it?

Providing serviced accommodation is enabling a property to be used as if it’s a hotel room, but without the staff and some of the services. The guests, and they are guests not tenants, typically stay for short periods at a time – anything from a few days to a few weeks.

Usually bedding and cleaning are provided but not food. Key safes can be used to allow guests to come and go conveniently.   

Guests can be sourced via websites such as Airbnb.

  • Why is it popular?

Typically the accommodation is priced at a daily rate and the total possible income per month can be several times greater than the rent obtainable by renting the property on a mainstream residential tenancy.

The sector is growing fast in many areas – especially town centres and holiday locations – and sizeable portfolios earning tens of thousands of pounds per month have been built up by some enterprising property entrepreneurs.

  • Pitfalls and dangers

While the income is greater than a typical residential letting, the management input and operational costs are also greater.

This is not a strategy for you if you are a “hands off investor”. You can delegate the work involved, but the margins need to be good enough to still allow you to make an acceptable profit.

You need to get your pricing right having regard to your occupancy levels; if you fail, you could easily end up in a loss-making situation.

Poor service followed by bad publicity can damage your reputation, making it harder for you to find guests.

The strategy is probably taking business away from regular hotels and there is every chance that the government will at some point impose regulations making it less profitable.

In London,  Airbnb already limits bookings on their site to a maximum of 90 days a year.

  • Good advice

Before starting up, you should check if there are any restrictions placed on SA by the local council or, if the property is leasehold, the freeholder or managing agent.

You need to have a first class system to vet potential guests. The wrong people can cause damage to your property as well as problems by upsetting neighbours.

Be sure that your building and contents insurances are adequate.

If you have a mortgage on the property, make sure your lender allows use of the property as SA.

It is best practice to team up with someone already doing SA or hire a property coach or mentor with experience of operating SA.img94joktmu714279.jpg

4. Rent to rent (R2R)

  • What is it?

Rent to rent is where someone takes over a property owned by someone else, paying a fee, and then rents it out to a tenant for more money than the fee, making a profit as a result.

The person taking over the property is typically responsible for its maintenance and upkeep for the length of the agreement, typically 3 to 7 years. 

Usually the agreement between the two sides will be in the form of a management agreement or a commercial lease.

It’s a strategy which can be combined with HMOs or SA to boost rental returns.

  • Why is it popular?

The strategy is popular because it allows people who don’t own a property to get some of the benefits of being a property owner. 

They don’t get the benefit of capital growth –  because it is not their property – but they can make an income or profit by renting out the property for more than they pay the owner.

It is a great strategy for people who can’t buy a property – for instance because of a poor credit record or lack of funds.

It is a relatively low cost way to benefit from property due to not needing to find:  (a) a deposit or  (b) the costs of purchase, such as mortgage fees, legal fees and stamp duty.

By taking on a large number of properties, it is possible to earn huge sums from R2R – with incomes above £20,000 per month not unheard of. 

  • Pitfalls and dangers

One of the biggest risks is that the owner – especially if a leaseholder or someone who owns the property subject to a mortgage – may not be entitled to enter into a R2R deal with you.

That could lead to potential problems with your tenants if you have to rehouse them, and you could end up with an unpleasant dispute on your hands, as well as ending up substantially out of pocket.

You can find yourself making less money than you think or even losing money, if circumstances go against you.

For instance, due to bad luck, you may end up incurring more in maintenance costs than anticipated – with the extra expenses making the arrangement unprofitable or not worthwhile.

The skill is to agree with the owner a monthly payment and length of agreement which minimise your chances of not meeting your financial expectations.

The temptation to pay too much to secure the deal can be strong, but should always be avoided.   

  • Good advice

It is essential to carry out thorough due diligence in respect of the owner and their circumstances prior to any agreement.

You should engage a lawyer with expertise in drafting R2R agreements and look to ensure that the agreement is a win not only for the owner, but for you too.

As the strategy is not particularly straightforward, it is sensible to fully educate yourself in advance. As well as self-education, consider attending a specialist course – but only after thoroughly researching the track record of the course provider and, ideally, talking to two or three people who have attended the course and are willing to recommend it.   

ProfessionalSourcing.jpg

5 . Property sourcing

  • What is it?

Property sourcing is where someone, a sourcer, finds a property for an investor, usually to order, and receives a fee in return.

Sourcers typically specialise in particular types of property or operate in specific locations.

The bigger the profit margin a sourcer can find for their investor client, the more they can charge by way of fees. The best paid sourcers are usually those finding development sites and commercial properties, as well as those sourcing properties suitable as HMOs or serviced accommodation. 

  • Why is it popular?

Sourcing has the big advantage of requiring very little money to get started. It appeals to people who want to make money from property, having the time but not the money.

It is a strategy which can be taken up relatively easily and quickly. Once a sourcer knows the requirement of an investor client, and enters a written agreement with them, they can start searching and earning.

It is a method for people who can’t buy a property to nevertheless secure property-based income.

  • Pitfalls and dangers

Although it is relatively quick and easy to set yourself up as a property sourcer, it is unwise to begin without making sure that you do so professionally – protecting both your clients and yourself.

If your contractual documents are not professionally drawn up, they could land you in hot water in the event of a dispute with a client.

Disputes are less likely to spiral out of control if you are signed up with one of the redress schemes available to property professionals.

You should register with the Information Commissioner and you could face a substantial fine if you don’t adequately protect the data of your clients.

If you don’t put in the time and effort to become an expert at finding property meeting the exact criteria of your clients, there is every chance you will fail to build that reputation for quality and reliability which will enable you to grow your client base and thrive.   

  • Good advice

Don’t rush into starting up because the barriers to doing so seem low.

Fully educate yourself on all aspects of the strategy, considering suitable training and courses.

Focus on finding clients or buyers; if you have no buyers, you will make no money, no matter how amazing the properties you source.

Make sure that any legal document you use has been prepared or approved by a solicitor or other qualified expert. 

Look to specialise in a particular type of property, enabling you to be marked off as an expert.

Conclusion

With hard work and diligence, you can definitely make healthy profits operating one or more of the 5 hottest property strategies right now.

But you should never under-estimate the time, effort and knowledge needed to excel in any of these strategies.

Understanding the pitfalls and dangers and taking steps to mitigate them is fundamental to your ultimate success.

It may be tempting to rush into a strategy “to start making the big money immediately” – but it is a temptation that should be resisted.

The best approach is to comprehensively invest in yourself by learning as much as possible about your chosen strategy before jumping in and chasing after the pound notes.

Enjoyed this blog? Please share it with friends by clicking on the LinkedIn, Twitter, Facebook or Instagram icon on this page. 

Are you embarking on any of the 5 hot strategies at the moment? How are you getting on? Are you doing as well as anticipated? Please leave your observations or comments below.

You may also find the following blogs useful:

Think like a property millionaire (the fundamentals of a millionaire mindset)
Instant property entrepreneur (how to become a property entrepreneur today)
No money property investing (brief overview of no cost property investing)

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Dalton Barrett
Rebel Property Coach

Please follow me on Twitter @Dalton1London
You can find me on FacebookInstagram and on YouTube
Please link up with me at LinkedIn

My website is: www.rebelpropertycoach.com


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